13 Mar The mushrooming of biotechnology in the U.S.
Although BIO 2006 is around the corner and coming to the Midwest for the first time, we know that this meeting heads back to the East Coast in 2007 (Boston). Nevertheless, it is a good sign that we have broken the original “East Coast/West Coast” mold and that the BIO organization realizes that biotechnology is flourishing in many areas of the U.S. beside these regions.
One proof of this was evident in a recent article in the March edition of BioPharm International which provided some interesting insights into this multi-state effect. According to the author, Brian O’Connell, there were about 1,500 biotech companies in the U.S. in 2002 (the number hasn’t really changed since that time) employing nearly 195,000 workers and with revenues of $33.6 billion.
As a measuring point, there were about 1,200 companies a decade earlier, with revenues of $8 billion and 79,000 employees. So the industry has quadrupled its revenue and more than doubled in employment.
The amount of capital raised in this period has not increased in spite of the increase in number of companies and employees: the industry raised about $20.1 billion a decade ago versus $20.8 billion in 2004. This means less money per company on average!
As the author continues, the U.S. Bureau of Labor Statistics estimates that the life sciences industry will grow by 13 percent through 2012. This increase means attracting larger numbers of college grads obtaining degrees in the various fields encompassing the life sciences (biology, chemistry, pharmaceutics, pharmacology, pharmacy, medicine, biotechnology, etc.)
Does this mean all this increase in employment is going to the traditional centers of biotech on the East and West Coasts? Not if you take into account what a diverse group of states is doing:
Florida is spending about $500 million in a new branch of the Scripps Research Institute (this center helped put San Diego on the biotech map). Florida has also linked $30 million in funding to 3 state universities creating Centers of Excellence geared towards attracting biotech firms to its college campuses.
Arizona earmarked $90 million to attract a genomics research center in Phoenix (home of Arizona State University in nearby Tempe), and Tucson (University of Arizona) seems to be exploding in scientific and biotech activity, and has been a huge recipient of NASA research funding.
Missouri is apparently providing biotech companies located in the state $36 million/year from 2007 through 2025 (if my math is correct that totals almost $700 million)
Georgia has rolled out a recent cancer research public-private initiative totaling $1 billion (it is not for nothing that the annual American Society of Clinical Oncology meeting is being held this year in Atlanta – the second time in about 5 years)
Ohio: Third Frontier Project will provide $500 million for biomedical research.
Michigan: the Michigan Life Sciences Corridor has already started recently funding and will continue to fund $1 billion over 20 years
Indiana: the new 21st Century Fund has set aside $80 million for the state’s life science companies.
Wisconsin: I have already spoken in other articles to this state’s huge financial initiatives in stem cell therapy, but it doesn’t just stop there, this is a state that has all kinds of money into biotech research, as well as incentives for new companies including Act 255 involving tax credits for angel investors (and VC funds).
A number of states have used money from the tobacco settlements to fund biotech initiatives. And the traditional centers of biotech are not standing around doing nothing in response:
California has set aside $3 billion in state funds (through the Proposition 71 initiative) for stem cell research; has also offered free rent to companies in San Diego to life science companies along with legal assistance, free meeting facilities and hotel rooms for the next 10 years.
Pennsylvania has also earmarked $2 billion of tobacco settlement funds for life sciences.
New Jersey, home already to a number of large U.S. and international Pharma companies, is also growing in numbers of biotech companies, going from 84 to in 1998 to 124 in 2003. New Jersey is one of the only states allowing companies to sell their annual losses (which most biotech companies produce) and tax loss carry-forwards for cash on a discounted basis, to other companies that need these tax losses for tax purposes.
Summarizing some of this activity around the U.S., according to the article (with data from BIO – www.bio.org):
State Involvement in Biotech Initiatives (BioPharm International, March 2006)
|Area of Investment||Number of States|
|Funding for Bioscience R&D facilities||33|
|R&D Tax Credits||33|
|Tax Credits for Investment in VC funds||18|
|Direct State Investment in VC Funds||13|
The Wall Street Journal in a recent article (February 27) reviewed the financial performance of many industry segments on a 1-year, 3-year, 5-year and 10-year basis. Twenty-three companies made their Honor Roll list (this means that these companies earned straight A ratings in compound annual return rates and were in the top 20 percent of companies evaluated for this period – the key parameter looked at, however, was the 5 year return rate).
Surprise, surprise; there were a couple of biotech companies on this list:
Number 15 was Gilead Sciences which had a 1 year return of 50 percent, a 3 year return of 46 percent, a 5 year return of 38 percent and a 10 year return of 29 percent
Number 20 was Celgene which had a 1 year return of 144 percent, a 3 year return of 82 percent, a 5 year return of 32 percent, and a 10 year return of 29 percent.(Celgene in fact was number 9 on the list for a 10 year return rate)
Even more surprising was that a medical supply company, Inamed, was ranked number 7 with a 1 year return of 39 percent, a 3 year return of 62 percent, a 5 year return of 45 percent, and a 10 year return of 31 percent.
By the way, Apple Computer was number 5 on the list. What did not fare well on a 5-year return rate basis was Big Pharma, although this group recovered on the longer term 10-year return rate basis.
Leading Big Pharma Stock Return Rates (Wall Street Journal, February 27, 2006)
|Company||1 Year Return||3 Year Return||5 year Return||10 Year Return|
|Johnson & Johnson||<3.4%>||+5.8%||+4.5%||+12.6%|
Another interesting comparison is looking at different healthcare-related industry segments:
Healthcare Industry Segments Stock Returns (Wall Street Journal, February 27, 2006)
|Industry Segment||1 Year Return||3 Year Return||5 Year Return||10 Year Return|
Notice that in the above groups, the Biotechnology segment had the best performance for 1 year, 3 years, and 10 year returns, whereas Pharmaceuticals had the lowest across the board in all categories!
T-minus 27 days to BIO 2006 in Chicago. According to BIO, we are now breaking pre-attendance registration records, but come on Midwest, now is the time to show strength in attendance; after all we are hosts and are on display! See you next week!
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